Auto insurance rates rising at fastest rate in almost 13 years

Americans are driving more, thanks to rising employment and cheaper gasoline. But that also means they're getting into more accidents — and that's leading to higher insurance rates.

Of course, it's not just a matter of more people cruising the roads. Unsafe behavior also may be contributing to a national accident problem, according to research released by the AAA Foundation for Traffic Safety. A February report by the group found about 87 percent of drivers engaged in at least one risky behavior while behind the wheel within the past month, including using cell phones or not wearing seat belts.
"The number of accidents has gone up," said Jim Lynch, chief actuary of the Insurance Information Institute, a trade group. "At the same time, the size of claims settlements has been rising as well, so the industry is kind of getting hit by a double whammy."

The size of claims — which in industry lingo is called "claims severity" — is trending higher and affecting several auto insurance companies. Rising costs for medical care and auto repair are big drivers of increasing claims severity. The increasing price of auto parts contributes as well.
But critically, there are more personal auto claims as a result of Americans driving more miles. That trend, which is closely watched by industry analysts, can hurt the profitability of the insurance companies.
"If you look at companies like Allstate and Geico, last year in particular they reported much higher (personal claims) frequency than they had expected, and that eroded their profitability," said Meyer Shields, a stock analyst at investment bank Keefe, Bruyette & Woods. "They are slowly building that back now, really through just higher insurance rates."

Shields added that auto insurers Progressive and National General also saw an uptick in claims frequency but "seemed to anticipate it better and were able to adjust their rates to be able to absorb" it.